Yesterday’s decision by the Bank of England came as a surprise to forex traders. While the Official Bank Rate was left unchanged at 3.75%, markets were caught off guard by the notably dovish signals regarding future policy.

According to media reports, four out of nine Monetary Policy Committee members voted for an immediate rate cut. This has brought forward expectations of easing by the Bank of England, making the pound less attractive to hold and triggering its weakness yesterday.

Technical Analysis of GBP/USD

Price action in GBP/USD has been forming an upward trend (outlined by a channel) since November last year. However, yesterday’s move has put this channel at risk of a downside break.

It is worth noting that the market had only recently been in a very strong bullish phase. GBP/USD was advancing along the blue support line and even pushed above the upper boundary of the ascending channel.

Sentiment then shifted abruptly. Bears stepped in aggressively, driving the pair lower and breaking through several technical levels in sequence:

→ the blue trendline;
→ the upper boundary of the channel;
→ the channel median, reinforced by the 1.3640 level.

As a result, the price fell towards the lower boundary of the channel, strengthened by the 1.3530 level, which had acted as resistance in late December and early January.

Almost all of the bullish gains made in late January have now been erased. It cannot be ruled out that today’s rebound in GBP/USD is merely a technical recovery — a pause that allows bears to regroup before attempting a break below the lower boundary of the ascending channel, potentially steering the market into a downward trajectory (shown in red).

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